Cases clarify duty of good faith contractual performance


Joel Berkovitz Head ShotSeveral recent cases help spell out the duty of good faith contractual performance that exists in contract law, Toronto business lawyer Joel Berkovitz tells The Lawyer’s Daily.

In this case, for example, the Supreme Court of Canada “recognized that a duty of good faith contractual performance exists as a general organizing principle of the common law of contract,” writes Berkovitz, a lawyer with Shibley Righton LLP.

And two recent Ontario Court of Appeal (OCA) cases “interpreted this duty in the context of lending relationships and the termination of fixed-term service contracts,” he says.

In this case, writes Berkovitz, the OCA “considered whether a lender was obligated to continue providing overdraft lending to a borrower, given a history of such lending.”

The plaintiff was a commercial client of the defendant bank, he explains.

“Its nursery business was seasonal, and so during its busy season it routinely requested to borrow above the maximum amount of its line of credit so that it had the working capital it needed. [The bank] granted these requests for several years. However, in 2007 [the nursery] did not repay in full the additional amount which it borrowed, and in 2008, when [the company] again sought to borrow additional funds … above its credit line, [the bank] refused to provide the funding,” says Berkovitz.

The company sued, claiming the bank “had breached the duty of good faith contractual performance by refusing to advance the additional funds,” he says.

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